##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to
 Commission file number: 000-19580
 T-3 ENERGY SERVICES, INC.
  Delaware
(State or Other Jurisdiction 
of Incorporation or Organization)
    
    76-0697390
(IRS Employer
Identification No.)7135 Ardmore, Houston, Texas
(Address of Principal Executive Offices)
    
    77054
(Zip Code)
 (713) 996-4110
 þ o
  o o þ
 o þ




---



##### 



TABLE OF CONTENTS
 FORM 10-Q
 Item
    
    PagePART I1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2007 and 2006
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2007 and 2006
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three and
Six Months Ended June 30, 2007 and 2006
    
    4Notes to Condensed Consolidated Financial Statements
    
    52. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    143. Quantitative and Qualitative Disclosures about Market Risk
    
    244. Controls and Procedures
    
    24PART II1. Legal Proceedings
    
    251A. Risk Factors
    
    252. Unregistered Sales of Equity Securities and Use of Proceeds
    
    323. Defaults Upon Senior Securities
    
    324. Submission of Matters to a Vote of Security Holders
    
    325. Other Information
    
    326. Exhibits
    
    32Certificate of Amendment to Certificate of IncorporationCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350
  i




---



##### Table of Contents



T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands except for share amounts)
 June 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,835
    
    
    $
    3,393Accounts receivable  trade, net
    
    
    30,931
    
    
    
    25,634Inventories
    
    
    36,660
    
    
    
    27,227Notes receivable, current portion
    
    
    15
    
    
    
    14Deferred income taxes
    
    
    2,931
    
    
    
    2,208Prepaids and other current assets
    
    
    5,795
    
    
    
    5,557Total current assets
    
    
    108,167
    
    
    
    64,033Property and equipment, net
    
    
    25,155
    
    
    
    24,639Notes receivable, less current portion
    
    
    324
    
    
    
    325Goodwill, net
    
    
    71,240
    
    
    
    70,569Other intangible assets, net
    
    
    2,371
    
    
    
    2,510Equity investment in unconsolidated affiliate
    
    
    470
    
    
    
    Other assets
    
    
    438
    
    
    
    567Total assets
    
    $
    208,165
    
    
    $
    162,643LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable  trade
    
    $
    17,033
    
    
    $
    14,453Accrued expenses and other
    
    
    16,422
    
    
    
    14,457Current maturities of long-term debt
    
    
    
    
    
    
    85Total current liabilities
    
    
    33,455
    
    
    
    28,995Long-term debt, less current maturities
    
    
    
    
    
    
    Other long-term liabilities
    
    
    1,120
    
    
    
    34Deferred income taxes
    
    
    3,890
    
    
    
    3,454Commitments and contingenciesStockholders equity:Preferred stock, $.001 par value, 25,000,000 and 5,000,000
shares authorized at June 30, 2007 and December 31, 2006,
respectively, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 50,000,000 and 20,000,000 shares
authorized at June 30, 2007 and December 31, 2006,
respectively, 12,157,645 and 10,762,016 shares issued and
outstanding at June 30, 2007 and December 31, 2006,
respectively
    
    
    12
    
    
    
    11Warrants, 13,919 and 327,862 issued and outstanding at June 30,
2007 and December 31, 2006, respectively
    
    
    27
    
    
    
    644Additional paid-in capital
    
    
    156,104
    
    
    
    126,054Retained earnings
    
    
    11,526
    
    
    
    2,672Accumulated other comprehensive income
    
    
    2,031
    
    
    
    779Total stockholders equity
    
    
    169,700
    
    
    
    130,160Total liabilities and stockholders equity
    
    $
    208,165
    
    
    $
    162,643
  1




---



##### Table of Contents



T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (in thousands except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Products
    
    $
    41,001
    
    
    $
    28,463
    
    
    $
    78,840
    
    
    $
    53,464Services
    
    
    10,932
    
    
    
    9,602
    
    
    
    20,993
    
    
    
    20,28451,933
    
    
    
    38,065
    
    
    
    99,833
    
    
    
    73,748Cost of revenues:Products
    
    
    25,526
    
    
    
    18,277
    
    
    
    49,839
    
    
    
    34,523Services
    
    
    6,519
    
    
    
    5,673
    
    
    
    12,755
    
    
    
    11,98632,045
    
    
    
    23,950
    
    
    
    62,594
    
    
    
    46,509Gross profit
    
    
    19,888
    
    
    
    14,115
    
    
    
    37,239
    
    
    
    27,239Operating expenses
    
    
    11,953
    
    
    
    7,426
    
    
    
    20,441
    
    
    
    14,333Income from operations
    
    
    7,935
    
    
    
    6,689
    
    
    
    16,798
    
    
    
    12,906Interest expense
    
    
    103
    
    
    
    254
    
    
    
    256
    
    
    
    510Interest income
    
    
    (259
    )
    
    
    (6
    )
    
    
    (281
    )
    
    
    (12
    )Equity in earnings of unconsolidated
affiliate
    
    
    (326
    )
    
    
    
    
    
    
    (310
    )
    
    
    Other (income) expense, net
    
    
    (152
    )
    
    
    (392
    )
    
    
    (169
    )
    
    
    (476
    )Income from continuing operations before
provision for income taxes
    
    
    8,569
    
    
    
    6,833
    
    
    
    17,302
    
    
    
    12,884Provision for income taxes
    
    
    3,256
    
    
    
    2,448
    
    
    
    6,490
    
    
    
    4,635Income from continuing operations
    
    
    5,313
    
    
    
    4,385
    
    
    
    10,812
    
    
    
    8,249Loss from discontinued operations, net of tax
    
    
    (1,075
    )
    
    
    (50
    )
    
    
    (1,075
    )
    
    
    (130
    )Net income
    
    $
    4,238
    
    
    $
    4,335
    
    
    $
    9,737
    
    
    $
    8,119Basic earnings (loss) per common share:Continuing operations
    
    $
    .45
    
    
    $
    .41
    
    
    $
    .96
    
    
    $
    .78Discontinued operations
    
    $
    (.09
    )
    
    $
    
    
    
    $
    (.09
    )
    
    $
    (.01
    )Net income per common share
    
    $
    .36
    
    
    $
    .41
    
    
    $
    .87
    
    
    $
    .77Diluted earnings (loss) per common share:Continuing operations
    
    $
    .44
    
    
    $
    .40
    
    
    $
    .94
    
    
    $
    .76Discontinued operations
    
    $
    (.09
    )
    
    $
    
    
    
    $
    (.10
    )
    
    $
    (.01
    )Net income per common share
    
    $
    .35
    
    
    $
    .40
    
    
    $
    .84
    
    
    $
    .75Weighted average common shares outstanding:Basic
    
    
    11,779
    
    
    
    10,593
    
    
    
    11,235
    
    
    
    10,588Diluted
    
    
    12,127
    
    
    
    10,960
    
    
    
    11,558
    
    
    
    10,819
  2




---



##### Table of Contents



T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (in thousands)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    9,737
    
    
    $
    8,119Adjustments to reconcile net income to net cash
provided by operating activities:Loss from discontinued operations, net of tax
    
    
    1,075
    
    
    
    130Bad debt expense
    
    
    110
    
    
    
    43Depreciation and amortization
    
    
    2,096
    
    
    
    1,654Amortization of deferred loan costs
    
    
    126
    
    
    
    124Loss on sale of assets
    
    
    9
    
    
    
    13Deferred taxes
    
    
    (63
    )
    
    
    947Equity in earnings of unconsolidated affiliate
    
    
    (310
    )
    
    
    Employee stock-based compensation expense
    
    
    1,989
    
    
    
    721Amortization of stock compensation
    
    
    
    
    
    
    1Excess tax benefits from stock-based compensation
    
    
    (435
    )
    
    
    (78
    )Changes in assets and liabilities, net of effect of
acquisitions and dispositions:Accounts receivable  trade
    
    
    (5,159
    )
    
    
    (3,004
    )Inventories
    
    
    (9,110
    )
    
    
    (6,928
    )Prepaids and other current assets
    
    
    (70
    )
    
    
    4,553Other assets
    
    
    (355
    )
    
    
    (157
    )Accounts payable  trade
    
    
    2,445
    
    
    
    485Accrued expenses and other
    
    
    779
    
    
    
    250Net cash provided by operating activities
    
    
    2,864
    
    
    
    6,873Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,247
    )
    
    
    (5,229
    )Proceeds from sales of property and equipment
    
    
    25
    
    
    
    144Cash paid for acquisitions, net of cash acquired
    
    
    
    
    
    
    (2,248
    )Equity investment in unconsolidated affiliate
    
    
    (160
    )
    
    
    Collections on notes receivable
    
    
    
    
    
    
    26Net cash used in investing activities
    
    
    (2,382
    )
    
    
    (7,307
    )Cash flows from financing activities:Net borrowings (repayments) under revolving credit facility
    
    
    (85
    )
    
    
    973Payments on long-term debt
    
    
    
    
    
    
    (24
    )Net proceeds from issuance of common stock
    
    
    22,742
    
    
    
    Proceeds from exercise of warrants
    
    
    4,018
    
    
    
    Proceeds from exercise of stock options
    
    
    836
    
    
    
    142Excess tax benefits from stock-based compensation
    
    
    435
    
    
    
    78Net cash provided by financing activities
    
    
    27,946
    
    
    
    1,169Effect of exchange rate changes on cash and cash equivalents
    
    
    14
    
    
    
    (34
    )Cash flows of discontinued operations:Operating cash flows
    
    
    
    
    
    
    (133
    )Investing cash flows
    
    
    
    
    
    
    Financing cash flows
    
    
    
    
    
    
    Net cash used in discontinued operations
    
    
    
    
    
    
    (133
    )Net increase in cash and cash equivalents
    
    
    28,442
    
    
    
    568Cash and cash equivalents, beginning of period
    
    
    3,393
    
    
    
    1,162Cash and cash equivalents, end of period
    
    $
    31,835
    
    
    $
    1,730
  3




---



##### Table of Contents



T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 (in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    4,238
    
    
    $
    4,335
    
    
    $
    9,737
    
    
    $
    8,119Other comprehensive income:Foreign currency translation adjustment
    
    
    1,148
    
    
    
    424
    
    
    
    1,252
    
    
    
    417Comprehensive income
    
    $
    5,386
    
    
    $
    4,759
    
    
    $
    10,989
    
    
    $
    8,536
  4




---



##### Table of Contents



T-3 ENERGY SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. BASIS OF PRESENTATION
  Equity Method Investments
  Income Taxes
  New Accounting Pronouncements
 Fair Value Measurements
 5




---



##### Table of Contents



2. BUSINESS COMBINATIONS AND DISPOSITIONS
 Business Combinations
    Fair value of tangible and intangible assets,
net of cash acquired
    
    $
    1,327Goodwill recorded
    
    
    1,309Total liabilities assumed
    
    
    (388
    )Common stock issued
    
    
    Cash paid for acquisitions, net of cash acquired
    
    $
    2,248
 Dispositions
   3. EQUITY INVESTMENT IN UNCONSOLIDATED AFFILIATE
  6




---



##### Table of Contents



4. INVENTORIES
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    7,176
    
    
    $
    4,547Work in process
    
    
    15,697
    
    
    
    11,826Finished goods and component parts
    
    
    13,787
    
    
    
    10,854$
    36,660
    
    
    $
    27,227
 5. DEBT
  6. EARNINGS (LOSS) PER SHARE
   7




---



##### Table of Contents



Three Months EndedJune 30,2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    5,313
    
    
    $
    4,385Loss from discontinued operations
    
    
    (1,075
    )
    
    
    (50
    )Net income
    
    $
    4,238
    
    
    $
    4,335Denominator:Weighted average common shares outstanding  basic
    
    
    11,779
    
    
    
    10,593Shares for dilutive stock options, restricted stock and warrants
    
    
    348
    
    
    
    367Weighted average common shares outstanding  diluted
    
    
    12,127
    
    
    
    10,960Basic earnings (loss) per common share:Continuing operations
    
    $
    .45
    
    
    $
    .41Discontinued operations
    
    
    (.09
    )
    
    
    Net income per common share
    
    $
    .36
    
    
    $
    .41Diluted earnings (loss) per common share:Continuing operations
    
    $
    .44
    
    
    $
    .40Discontinued operations
    
    
    (.09
    )
    
    
    Net income per common share
    
    $
    .35
    
    
    $
    .40
  Six Months EndedJune 30,2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    10,812
    
    
    $
    8,249Loss from discontinued operations
    
    
    (1,075
    )
    
    
    (130
    )Net income
    
    $
    9,737
    
    
    $
    8,119Denominator:Weighted average common shares outstanding  basic
    
    
    11,235
    
    
    
    10,588Shares for dilutive stock options, restricted stock and warrants
    
    
    323
    
    
    
    231Weighted average common shares outstanding  diluted
    
    
    11,558
    
    
    
    10,819Basic earnings (loss) per common share:Continuing operations
    
    $
    .96
    
    
    $
    .78Discontinued operations
    
    
    (.09
    )
    
    
    (.01
    )Net income per common share
    
    $
    .87
    
    
    $
    .77Diluted earnings (loss) per common share:Continuing operations
    
    $
    .94
    
    
    $
    .76Discontinued operations
    
    
    (.10
    )
    
    
    (.01
    )Net income per common share
    
    $
    .84
    
    
    $
    .75
  8




---



##### Table of Contents



7. SEGMENT INFORMATION
    (dollars in thousands)PressureControl
    
    Corporate
    
    ConsolidatedThree months ended June 30:2007Revenues
    
    $
    51,933
    
    
    $
    
    
    
    $
    51,933Depreciation and amortization
    
    
    744
    
    
    
    331
    
    
    
    1,075Income (loss) from operations
    
    
    13,210
    
    
    
    (5,275
    )
    
    
    7,935Capital expenditures
    
    
    1,253
    
    
    
    320
    
    
    
    1,5732006Revenues
    
    $
    38,065
    
    
    $
    
    
    
    $
    38,065Depreciation and amortization
    
    
    600
    
    
    
    247
    
    
    
    847Income (loss) from operations
    
    
    9,400
    
    
    
    (2,711
    )
    
    
    6,689Capital expenditures
    
    
    2,191
    
    
    
    545
    
    
    
    2,736(dollars in thousands)PressureControl
    
    Corporate
    

    ConsolidatedSix months ended June 30:2007Revenues
    
    $
    99,833
    
    
    $
    
    
    
    $
    99,833Depreciation and amortization
    
    
    1,447
    
    
    
    649
    
    
    
    2,096Income (loss) from operations
    
    
    24,770
    
    
    
    (7,972
    )
    
    
    16,798Capital expenditures
    
    
    1,859
    
    
    
    388
    
    
    
    2,2472006Revenues
    
    $
    73,748
    
    
    $
    
    
    
    $
    73,748Depreciation and amortization
    
    
    1,180
    
    
    
    474
    
    
    
    1,654Income (loss) from operations
    
    
    18,207
    
    
    
    (5,301
    )
    
    
    12,906Capital expenditures
    
    
    4,565
    
    
    
    664
    
    
    
    5,229
 8. INCOME TAXES
  9




---



##### Table of Contents



9. COMMITMENTS AND CONTINGENCIES
 th
 st
  10




---



##### Table of Contents



10. STOCKHOLDERS EQUITY
   Common Stock
  Warrants
  11




---



##### Table of Contents



Additional Paid-In Capital
  Cumulative Effect of a Change in Accounting Principle
  11. STOCK-BASED COMPENSATION
  Stock Option Awards
  Six Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006Expected volatility
    
    
    40.00
    %
    
    
    52.79
    %Risk-free interest rate
    
    
    4.68
    %
    
    
    4.42
    %Expected term (in years)
    
    
    5
    
    
    
    4
  Restricted Stock Awards
  12




---



##### Table of Contents



13




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   Recent Developments
    Strategy
  
    
    Expand our manufacturing capacity through facility expansions and improvements. We
have expanded our manufacturing capacity to increase the volume and number of products we
manufacture, with an emphasis on our pressure and flow control product line. We invested
approximately $6.3 million during the first six months of 2007 and during 2006 on this
expansion effort, which includes increasing our BOP manufacturing capacity from ten to 25
units per month by upgrading and expanding our machining capabilities at our existing
facilities, along with our expansion into Conway, Arkansas
 14




---



##### Table of Contents




    
    expanding our BOP repair capacity from 7 stacks per month to 11 stacks per month;
    
    opening additional facilities for our wellhead product line;
    
    opening additional facilities for our pipeline product line; and
    
    expanding our elastomer producing capacity in North America.
 
    
    Continue new product development. Since April 2003, we have introduced 45 new
products, and we will continue to focus on new product development across all of our
product lines, with a continued focus on pressure and flow control products and more
recently on wellhead products. To support our expansion, we have increased our
engineering department staff to 24 employees and contract personnel as of June 30, 2007.
A significant portion of this increase in engineering staff is related to our increased
focus on our wellhead product line.
    
    Expand our geographic areas of operation. We intend to expand our geographic areas of
operation, with particular focus on field services for our wellhead and pipeline product
lines. We are expanding our wellhead and pipeline repair and remanufacturing services by
establishing facilities in areas we believe will have high drilling activity, such as the
Barnett Shale in North Texas, the Cotton Valley trend in the East Texas Basin, the
Fayetteville Shale in the Arkoma Basin and the Rocky Mountain and Appalachian regions. For
example, during 2006, we continued our expansion into the Rocky Mountain region by
acquiring KC Machine LLC, located in Rock Springs, Wyoming, and opening a facility in
Casper, Wyoming. In addition, we expanded into the East Texas Region by opening two
facilities and the Midwest region by opening a facility in Indianapolis, Indiana. Also,
during 2007 we established a presence in the Arkoma Basin by opening a facility in Conway,
Arkansas.
    
    Pursue strategic acquisitions and alliances. Our acquisition strategy will focus on
broadening our markets and existing product offerings. For example, in the first quarter
of 2007 we entered into an agreement with Gefro Oilfield Services ASA to market our
products and services and serve as an authorized repair center from their base in
Stavanger, Norway. In 2006, we acquired KC Machine LLC, located in Rock Springs, Wyoming,
to continue our expansion of our pressure and flow control, wellhead and pipeline products
and services to customers located in the Rocky Mountain region. We will continue to seek
similar strategic acquisition and alliance opportunities in the future.
 How We Generate Our Revenue
    15




---



##### Table of Contents



How We Evaluate Our Operations
  
    
    revenue and facility output;
    
    material and labor expenses as a percentage of revenue;
    
    selling, general and administrative expenses as a percentage of revenue;
    
    EBITDA; and
    
    financial and operational models.
 Revenue and Facility Output
  Material and Labor Expenses as a Percentage of Revenue
   Selling, General and Administrative Expenses as a Percentage of Revenue
  EBITDA
  
    
    as a measure of operating performance that assists us in comparing our performance on a
consistent basis because it removes the impact of our capital structure and asset base
from our operating results;
    
    as a measure for budgeting and for evaluating actual results against our budgets;
    
    to assess compliance with financial ratios and covenants included in our senior credit facility;
 16




---



##### Table of Contents




    
    in communications with lenders concerning our financial performance; and
    
    to evaluate the viability of potential acquisitions and overall rates of return.
 Financial and Operational Models
  Loss Management
 Customer Satisfaction.
 Employee Productivity
 Management System Compliance
 How We Manage Our Operations
  
    
    safety and environmental management systems;
    
    quality management systems;
    
    statistical tracking systems; and
    
    inventory turnover rates.
 Safety and Environmental Management Systems
   17




---



##### Table of Contents



Quality Management Systems
  Statistical Tracking Systems
  Inventory Turnover Rates
  Critical Accounting Policies and Estimates
    18




---



##### Table of Contents



New Accounting Pronouncements
 Fair Value Measurements
 Outlook
  WTI
    
    
    Henry Hub
    
    
    United States
    
    
    Canada
    
    
    InternationalQuarter Ended:
    
    Oil
    
    
    Gas
    
    
    Rig Count
    
    
    Rig Count
    
    
    Rig CountJune 30, 2005
    
    $
    53.05
    
    
    $
    6.95
    
    
    
    1,336
    
    
    
    241
    
    
    
    916September 30, 2005
    
    $
    63.19
    
    
    $
    9.64
    
    
    
    1,428
    
    
    
    497
    
    
    
    911December 31, 2005
    
    $
    60.00
    
    
    $
    12.80
    
    
    
    1,478
    
    
    
    572
    
    
    
    929March 31, 2006
    
    $
    63.27
    
    
    $
    7.91
    
    
    
    1,519
    
    
    
    665
    
    
    
    896June 30, 2006
    
    $
    70.41
    
    
    $
    6.65
    
    
    
    1,632
    
    
    
    282
    
    
    
    913September 30, 2006
    
    $
    70.42
    
    
    $
    6.17
    
    
    
    1,719
    
    
    
    494
    
    
    
    941December 31, 2006
    
    $
    59.98
    
    
    $
    7.24
    
    
    
    1,719
    
    
    
    440
    
    
    
    952March 31, 2007
    
    $
    58.08
    
    
    $
    7.17
    
    
    
    1,733
    
    
    
    532
    
    
    
    982June 30, 2007
    
    $
    64.97
    
    
    $
    7.66
    
    
    
    1,757
    
    
    
    139
    
    
    
    1,002
 
 Source: West Texas Intermediate Crude Average Spot Price for the Quarter indicated: Department of
Energy, Energy Information Administration (www.eia.doe.gov); NYMEX Henry Hub Natural Gas Average
Spot Price for the Quarter indicated: (www.oilnergy.com); Average Rig count for the Quarter
indicated: Baker Hughes, Inc. (www.bakerhughes.com).    19




---



##### Table of Contents



Results of Operations
 Three Months ended June 30, 2007 Compared with Three Months ended June 30, 2006
 Revenues.
 Cost of Revenues.
 Operating Expenses.
 Income Taxes.
 Income from Continuing Operations.
 Discontinued Operations
 20




---



##### Table of Contents



Six Months ended June 30, 2007 Compared with Six Months ended June 30, 2006
 Revenues.
 Cost of Revenues.
 Operating Expenses.
 Income Taxes.
 21




---



##### Table of Contents



Income from Continuing Operations.
 Discontinued Operations
 Liquidity and Capital Resources
  Net Cash Provided by Operating Activities.
 Net Cash Used In Investing Activities.
 Net Cash Provided by Financing Activities.
 Principal Debt Instruments.
  22




---



##### Table of Contents



23




---



##### Table of Contents



Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    YearsLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Letters of credit
    
    
    179
    
    
    
    55
    
    
    
    124
    
    
    
    
    
    
    
    Operating leases
    
    
    5,279
    
    
    
    2,060
    
    
    
    2,452
    
    
    
    742
    
    
    
    25Total contractual
obligations
    
    $
    5,458
    
    
    $
    2,115
    
    
    $
    2,576
    
    
    $
    742
    
    
    $
    25
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   24




---



##### Table of Contents



Changes in Internal Controls Over Financial Reporting
  
 PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   Risks Related to Our Business
 If we are unable to successfully manage our growth and implement our business plan, our results of
operations will be adversely affected.
  
    
    inability to integrate operations between existing and new or expanded facilities;
    
    lack of a sufficient number of qualified technical and operating personnel;
 25




---



##### Table of Contents




    
    shortage of operating equipment and raw materials necessary to operate our expanded
business; and
    
    managing the increased costs associated with our expansion.
 Our business depends on spending by the oil and gas industry, and this spending and our
business may be adversely affected by industry conditions that are beyond our control.
  
    
    the level of drilling activity;
    
    the level of oil and gas production;
    
    the demand for oil and gas related products;
    
    domestic and worldwide economic conditions;
    
    political instability in the Middle East and other oil producing regions;
    
    the actions of the Organization of Petroleum Exporting Countries;
    
    the price of foreign imports of oil and gas, including liquefied natural gas;
    
    natural disasters or weather conditions, such as hurricanes;
    
    technological advances affecting energy consumption;
    
    the level of oil and gas inventories;
    
    the cost of producing oil and gas;
    
    the price and availability of alternative fuels;
    
    merger and divestiture activity among oil and gas producers; and
    
    governmental regulation.
  A decline in or substantial volatility of oil and gas prices could adversely affect the demand
and prices for our products and services.
   26




---



##### Table of Contents



We rely on a few key employees whose absence or loss could disrupt our operations or be
adverse to our business.
  Our inability to deliver our backlog on time could affect our future sales and profitability
and our relationships with our customers.
  Our industry has recently experienced shortages in the availability of qualified personnel. Any
difficulty we experience replacing or adding qualified personnel could adversely affect our
business.
  Shortages of raw materials may restrict our operations.
  We intend to expand our business through strategic acquisitions. Our acquisition
strategy exposes us to various risks, including those relating to difficulties in identifying
suitable acquisition opportunities and integrating businesses and the potential for increased
leverage or debt service requirements.
  
    
    unanticipated costs and exposure to unforeseen liabilities;
    
    difficulty in integrating the operations and assets of the acquired businesses;
 27




---



##### Table of Contents




    
    potential loss of key employees and customers of the acquired company;
    
    our ability to properly establish and maintain effective internal controls over an
acquired company; and
    
    risk of entering markets in which we have limited prior experience.
   The oilfield service industry in which we operate is highly competitive, which may result in a
loss of market share or a decrease in revenue or profit margins.
  If we do not develop and commercialize new competitive products, our revenue may decline.
  
    
    design and commercially produce products that meet the needs of our customers;
    
    successfully market new products; and
    
    protect our proprietary designs from our competitors.
   28




---



##### Table of Contents



The cyclical nature of or a prolonged downturn in our industry could affect the carrying value of
our goodwill.
  We may be faced with product liability claims.
  Liability to customers under warranties may materially and adversely affect our earnings.
  Uninsured or underinsured claims or litigation or an increase in our insurance premiums could
adversely impact our results.
  Our operations are subject to stringent environmental laws and regulations that may expose us
to significant costs and liabilities.
   29




---



##### Table of Contents



We will be subject to political, economic and other uncertainties as we expand our international
operations.
  
    
    political, social and economic instability;
    
    currency fluctuations; and
    
    government regulation that is beyond our control.
  If we are unable to complete our assessment of the adequacy of our internal control over
financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could
lose confidence in the reliability of our financial statements, which could result in a decrease in
the value of our common stock.
  Risks Related to Our Common Stock
 The market price of our common stock may be volatile or may decline regardless of our
operating performance.
  30




---



##### Table of Contents




    
    actual or anticipated variations in quarterly operating results;
    
    announcements of technological advances by us or our competitors;
    
    current events affecting the political and economic environment in the United States;
    
    conditions or trends in our industry, including demand for our products and services,
technological advances and governmental regulations;
    
    litigation involving or affecting us;
    
    changes in financial estimates by us or by any securities analysts who might cover our stock; and
    
    additions or departures of our key personnel.
  We may incur increased costs as a result of no longer being a controlled company.
  Our ability to issue preferred stock could adversely affect the rights of holders of our common
stock.
  Certain provisions in our charter documents have anti-takeover effects.
  Because we have no plans to pay any dividends for the foreseeable future, investors must look
solely to stock appreciation for a return on their investment in us.
  31




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 None
 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  a.
    
    The following nominee was elected at that meeting as Class III director:
 Number of VotesName of Nominee
    
    For
    
    WithheldStephen A. Snider
    
    
    9,656,371
    
    
    
    128,430
 b.
    
    The result of the vote to approve the amendment to the Certificate of Incorporation to
increase the number of authorized shares of preferred stock from 5,000,000 to 25,000,000
and the number of authorized shares of common stock from 20,000,000 to 50,000,000 was as
follows:
 Number of VotesFor
    
    Against
    
    Abstain
    
    Non-Votes5,906,571
    
    
    
    1,785,323
    
    
    
    458,908
    
    
    
    1,633,999
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit Number
    
    Identification of Exhibit3.1
    
    Certificate of Amendment to the Certificate of Incorporation of T-3
Energy Services, Inc.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), promulgated under the Securities Exchange Act of
1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a), promulgated under the Securities Exchange Act of
1934, as amended32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Executive
Officer)32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief Financial
Officer)
 32




---



##### Table of Contents



SIGNATURES
 Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 30th day of July 2007.
 T-3 ENERGY SERVICES, INC.By:
    /s/ MICHAEL T. MINOMichael T. Mino (Chief FinancialOfficer and Vice President) 33




---



##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Identification of Exhibit3.1*
    
    Certificate of Amendment to the Certificate of Incorporation of
T-3 Energy Services, Inc.31.1*
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a), promulgated under the Securities
Exchange Act of 1934, as amended31.2*
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a), promulgated under the Securities
Exchange Act of 1934, as amended32.1*
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief
Executive Officer)32.2*
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Chief
Financial Officer)
 
 *
    
    Filed herewith.